Just as background of my business model.
It is Business to Business only (not sell to general public)
Virtual office - trading in mostly custom manufactured equipment for heavy industries.
There are no common (SKU) code or similar used, only the detailed product descriptions.
No in-house anything … no warehouse/store/factory/mobile service/staff other than me.
Primarily sell custom built to order products, but sometimes provide associated 3rd party services, like inspection, transport, etc.
Typical work flow
Client sends RFQ - requests equipment with their custom requirements (literally millions of options so P/N is impractical, hence prefer freehand than control inventory)
I send Request For Quote ( RFQ ) to multiple manufacturers (both in country and over seas)
When Quote received from vendors (AUD or USD), a vendor is selected based on quality, delivery time & price (usually in that order)
I decide the appropriate MU and send a Sales Quote to my client.
If my client want this/these items, they raise a PO to me (AUD or USD).
I raise a SO internally (as the key tracking number for everything associated with the job until fully closed)
I raise a SI for payment (AUD or USD) and do ‘receive payment’ when client paid.(depending on terms 100% up front or upon delivery or credit terms)
Same time I raise the SO, I also raise a PO to my vendor (AUD or USD) for goods to be manufactured.
Some vendors Invoice for payment (AUD or USD) straight away others not (depending on terms 100% up front or upon delivery or credit terms)
When Invoiced by my vendor, I raise a PI and do ‘make payment’ (AUD or USD) only when paid.
When goods are completed manufacture & packed, the vendor ships my goods CIF to nearest port to my client.
I take over the custom clearance step separately with my own vendor freight forwarder who clears customs & does local delivery.
When Invoiced by my vendor freight forwarder (AUD), I raise a PI and do ‘make payment’ only when paid.
I raise a SI for payment (AUD) and do ‘receive payment’ when client paid.(depending on terms 100% up front or upon delivery or credit terms)
It is highly unlikely to have a repeat order of the exact same item, hence inventory in MRP systems become very burdensome if creating a unique item for each line item that will never be reused.
@Patch did not comment in this thread. I am the one who mentioned your workflow.
What you describe is logical. And it negates the concept of cost of goods sold. You describe the work of a project manager or general contractor. You should consider the use of Billable Expenses.
Therefore your current workflow is “perfectly” acceptable, furthermore, there is absolutely nothing wrong with using your current P&L structure - the title COGS is not limited to using Inventory. Lastly, Billable Expenses would not be a consideration as you, based on your workflow, can be raising Sales Invoices before you have received the related Purchase Invoices.
I did not say billable expenses would always be suitable. I suggested they should be considered. @Elfroar wrote, “…(depending on terms 100% up front or upon delivery or credit terms).” When the sequence of action is such that a purchase invoice is entered before the sales invoice is raised, treating the purchase as a billable expense would definitely be a consideration—and very convenient, especially after the recent changes in the Billable Expenses functionality.
This is very different to mass volume, thin margin selling of stock items.
I always know the COGS for each order by customer anyway, as when I receive the RFQ and number of quote from my vendors, I’m doing a mix of formula and manual calculations in excel comparing multiple vendors and the general market rates (my competitors) to determine the amount the maximum margin I will apply.
An old training question asked to new salespersons …
Q “if a product costs $100, how much would you sell it for?”
They often give answers like $110, $115, $120, etc … but the true answer is …
A "as much as the customer is willing to pay for it ! ", meaning it cold sell for as little as $101 or as much as $10,000, so at what point does the customer begin to walk away.
For my business with low volume, highly specialized and customized niche, is to determine this customer price pain threshold on a case by case bases.
So I will always be keenly aware of my COGS, the issue is ensuring these is sufficient sales and Gross Margin to cover the general expenses and achieve a Net Profit, but that’s business.
And no one has ever alleged that you did say that, so what shadows are you jumping at.
If you re-read the quotation “that you have used”, (1) it was addressed to @Elfroar and (2) it makes no reference to yourself - yet somehow you alone have unprofessionally converted that user’s quotation into being a non-existent attack upon yourself.
The shadow is your attempt to contradict everything in my earlier post, point by point, without mentioning my name. That was fairly transparent, even for a shadow.
I NEVER attempted to contradict everything in your earlier post, I was merely advising @Elfroar, based on the information that they had provided, that what they were currently doing is okay. @Elfroar confirmed my post by ticking a “like” - that is, they agreed with my observations.
More importantly however, what you seem to be suggesting here is this, if you (@Tut) provided a response in a topic, then no other forum user SHOULD EVER provide a response if that post is going to in anyway contradict your own posts (or is that just being reserved for @Brucanna).
Therefore in future, when you provide a contradictory response within a topic, I will remind you that apparently these aren’t permitted based on the principle that you have outlined here.
With justifiable reason, your name wasn’t relevant and remains irrelevant to the comments.
However if you want a spade to be called a spade then your entire commentary about COGS is utterly outdated Bulls—t.
Lastly, your false allegation “I did not say billable expenses would always be suitable” remains that, a false allegation.